One of the major decisions one makes in life is- where to live and how much you can spend on rent. It is an important decision as around half of the monthly salary goes towards rent. Renting an apartment depends on several factors, such as location, feasibility from office/university, reduced transportation, earnings, debts, cheap rentals, etc.
The priorities may vary from person to person. However, despite calculations and constant urge to minimise the rental costs, one spends more on rent. If you can relate to it, the blog may help. It lists the ideal amount you should spend on rental income and signs you overspend.
How much should you spend on rent according to experts?
According to experts, one must not spend over 30% of their income on rent. If your combined household income is €30000, your rent should not be more than 30000*30/100, i.e., €9000. This 30% rule helps the household cover rent without impacting other expenses and savings. However, one should spend only 30% of their income on rent. It is not possible for everyone.
Individuals with low income and multiple liabilities fail to save. For this reason, individuals with high-interest debt may invest not over 43% on rent. To take the same example, 30000*43/100= €12,900. You must not exceed this amount on rent if your salary is €30000.
However, some individuals spend high on rent unaware. Not exploring the rental rates and applying for one in the costliest location and facilities impacts the rates. Let’s check a few signs you spend high on rent unknowingly.
Am I overspending on rent?
Spending about 50% of your income on rent is not advisable. If you are then you may be in for financial trouble. For example, dedicating €15000 towards rent out of €30000 may impact other bills and liabilities. Eventually, the late fees, penalties and other costs increase the debt and your liabilities towards it. Knowing the signs of overspending will help you act timely. Let’s explore the signs you spend more on rent:
1) You live from paycheck to paycheck
If you are one of those who take a sigh of relief on notification “salary credited in XXXX account”, you may be living from paycheck to paycheck. Well, there are weeks when you spend more than intended.
However, when it becomes a norm, something is not right. Probably, most of your income goes towards rent. Address this by analysing your finances. If it’s true, check how to reduce the rental payments. Check a few signs you spend high on rent unknowingly.
2) Your cards decline continuously
Most individuals apply for new cards or request additional car limits but face rejection. However, having the card decline before the cashier is the worst feeling. It may be primarily due to pending debts in your profile. Most credit card companies restrict additional limits on profiles under debt. It makes the person seeking credit unreliable from the credit terms. Thus, chances are your pending rental payments may be the reason behind your deep debt.
3) You are not saving even 20% of your income
According to a 50-30-20 rule, 50% of your income should go towards managing the most important debts and bills, 30% towards wants and 20% towards savings. However, if your lifestyle consumes 90% of your income on liabilities and wants, you can hardly save anything. As mentioned above, rent consumes the most of your income. Apart from that, watch your financial habits and limit overspending on your credit. Check things that you often spend mindlessly on. It could be ordering food often, dining out, credit card purchases that exceed income, etc.
Some individuals use credit cards even in emergencies. It could prove the costliest expense. Instead, check the easy loans in the Ireland marketplace. It may help you counter emergencies without exceeding your affordable budget. These are known as easy loans because you may qualify for the same without detailed documentation or a form-filling process. Instead, you get it the same day with a simple form.
4) Find yourself unable to stick to a budget
Budgeting is an important financial habit that allows you to utilise your income wisely. It helps you dedicate a specific amount towards each liability. It thus makes you regular with the payments and helps avoid penalties and liabilities.
However, individuals with multiple liabilities struggle to stick to a budget. They often spend more than they ought to per month.
For example, if your landlord increases rent while your income remains the same, you fail to keep up with the budget. In this case, you should try to negotiate the deal with the landlord. If you share good ties with him, he may agree. Alternatively, resort to low-budget living by switching to an affordable rental place. It will help you manage your liabilities without worrying about heavy rent payments.
5) You have a high credit utilisation ratio
The credit utilisation ratio is the ratio between your income and your debts. If your debts exceed your income, you have a high debt-to-income ratio and vice versa. It is an important parameter that both the landlord and the lender consider. You may need a good credit utilisation ratio to qualify for affordable rental places and financial equipment.
If your credit utilisation ratio is higher than 30%, you may have credit issues. Moreover, you may struggle to get a rental space quickly. The high credit utilisation ratio is due to – pending debt, low income, high expenses, penalties, etc. It also impacts your credit score. If your credit utilisation ratio is high, pay the pending rental amount quickly.
Alternatively, seek cheap places available to rent near your office and university premises. You can also analyse the possibility of a roommate or sign a long-term agreement with the landlord. Some lenders cherish the idea of upfront payments. It is ideal for individuals with bad credit seeking affordable rentals.
Check how much you can pay towards rent upfront. You can seek online loans in Ireland’s marketplace to bridge the payment. It will help you qualify for feasible rent and improve your credit utilisation ratio. Seek short-term online loans according to your payment flexibility and requirements.
Bottom line
Thus, these are some common signs of overspending on rent. If you can relate to any of the signs, act quickly. Seek the best solutions to getting an affordable rent. However, identify the techniques that may help you lower the rental payments. It could be discussing or negotiating with lenders, applying for housing relief or rental relief programs and increasing income.
Caleb works as a senior content writer at Financealoan for the past 3 years. He is a writing enthusiast and invests a good time in exploring and writing about financial trends. His keenness in exploring a topic to create a research-based piece is simply unmatched. He believes in including a texture of authenticity with real-time examples and facts.
Caleb’s blogs and articles reveal deep-seated knowledge and expertise. His educational qualification forms the base of his excellent command over the industry and Jargon. He is a postgraduate in Finance and is currently involved in exploring the world of the stock market.
